The arrest of a senior gang member in Bangladesh has revealed details of how criminals abduct and maim children before putting them to work as beggars.

The existence of such practices has been reported frequently throughout south Asia, and featured in the Oscar-winning film Slumdog Millionaire, set in India. But details and hard evidence have been rare.

The case in Bangladesh was uncovered by human rights campaigners and a local television company late last year. On 28 December authorities arrested a suspected member of a gang based in the Kamrangirchar area of the capital, Dhaka.

The arrested man, identified as Shariful Islam, alias Korban, told interrogators how he and his accomplices abducted children, kept them for months in confined spaces or even in barrels and deprived them of food. Permanently disabled by their confinement and virtual starvation, the children were then sent on to the streets of the city either accompanied with a woman posing as their mother or alone, according to police.

The gang had maimed at least five children aged between seven and eight who subsequently earned between 500 and 1,000 taka a day (£4.50 to £9), Korban is alleged to have said.

"The criminals running the business are part of a big racket," said Lieutenant Colonel Ziaul Ahsan, director of intelligence for Bangladesh's Rapid Action Battalions, a feared paramilitary unit deployed against alleged terrorists and serious criminals. "Korban further confessed about attacking couples at Beribadh, killing male partners and abducting women for prostitution. We have video footages of his statements."

The Battalions have a reputation for heavy-handed treatment of prisoners and have been held responsible for hundreds of extra-judicial killings in recent years. A US state department document made public by WikiLeaks and the Guardian last month said members of the unit committed gross human rights violations with impunity. The cable exposed British government training for members of the Battalions despite their controversial record.

Beggars on the streets of Dhaka told the Guardian that gang leaders took much of their earnings. According to Mohammad Nasim, 35, who begs in Bijoy Nagar, each gang of beggars consists of around 500 members, with syndicates of beggars working under sardars (leaders).

"The children are kidnapped, put under the bed and left without food for several months, so that they became weak and disabled," said Nasim.

In 2009 the Bangladeshi government imposed a ban on begging, saying they hoped to eliminate the practice within five years. According to the law, anyone caught begging in public places would face a maximum three months in jail. Last week a court ordered the police to impose the ban.

Welfare groups have criticised the law as draconian and unworkable, arguing that it ignores the social problems underlying begging and makes no provision for the beggars' wellbeing.

"The beggars are without a shelter at this time. The government must develop the existing vagrant shelter homes to rehabilitate them," said Alena Khan, chairman of the Bangladesh Human Rights Foundation.

Some estimates put the number of people living from begging in the country as high as 700,000. The total population of Bangladesh is around 135 million. The World Bank has calculated that the percentage of Bangladeshis living in poverty has been reduced to under 40% from 49% 10 years ago. Economic growth has slowed recently and Bangladesh remains one of the poorest countries in the world.